Managing Competitive Advantage: The Values of National Strategy Creating Value: Moving from Comparative to Competitive Advantage GUATEMALA Executive Forum Montreux, Switzerland 25-28 September 2002
I. Progress and Current Export Situation: Guatemalan exports reached US$2,412.5 millions of dollars on year 2001. In the last two years the Guatemalan exports dynamic present a reduction tendency provoked by a world economy contraction in the year 2001, adverse weather features and sequels of the events happened on September 11, 2001 in the United States, which is the most important market for our country. 1.1 What does Guatemala export? 1.1.1 Traditional Exports: The traditional export evolution exceeded its maximum historic peak of US$1,110 millions in 1998 to US$ 798 millions in 2001 (a reduction close to 27.4%). This was due to international issues, such as the drop in the price of coffee, which has been our main export product. From 1980 to 2001 coffee represented an average more than a half of the total of traditional exports, followed by sugar, bananas and cardamom. 1.1.2 Non Traditional Exports: In 1994 non traditional products began an increased trend until the year 2000, with an annual average rate of 10%. The main Non Traditional Products or new products are: agricultural products such as vegetables, fruits, flowers, plants and species, hydrobiological that include shrimp and fish, manufactured goods like foodstuff, chemical products, furniture, apparel and textiles, handicrafts and others. 1.2 Export Main Markets Guatemala is a country with a diverse destination of its exports. According to the information provided for the year 2001, the Guatemalan products were exported to more than 80 countries. However, more than 70% of the exports are concentrated in five countries: United States, El Salvador, Honduras, Costa Rica and Nicaragua; which are basically our geographical neighbors. In second order of importance are South Korea, Mexico and Germany. 1.3 Guatemalan Main Suppliers: The Guatemalan main suppliers are, in order of importance: United States, Mexico, El Salvador, Japan, Venezuela, Costa Rica, Germany, Canada, Brazil, Spain, Colombia and Panama. 1.4 Positioning at a World Wide Level According to the OMC export merchandise data, our country has been between 0.07% and 0.04%. In the Central American market, the average growing rate of Guatemalan exports to the region was of 13.5% between 1995 and 2000. 1.5 Balance of Trade: Guatemala imported in the year 2001 US$5,607 millions and exported US$2413 millions. 1.6 Participation in GAP Exports: Exports represent 18.6% of GAP (2001). For a country to be considered as an export country, its total exports must represent at least 30% of GAP. 2
II. Investment Environment: 2.1 Comparative Advantages for Guatemala Guatemala has numerous comparative advantages that make it appealing for investment, among these you may find: - Strategic Geographical Position (natural bridge to North American and Latin American countries) - Variety of Microclimates - High Forest Potential - Macroeconomic Stability - One of the best Central America infrastructure (roads, telecommunications) - One of the more open economies. Average Rate 6% - Legal Frame for Foreign Investment (Foreign Investment Law, Intellectual Property Law, Energy Law, Telecommunications Law, Mining Law, Hidrocarbide Law, Migration Law, Drawback Law, Free Trade Zones Law) - Abundant labor force 2.2 Other Advantages - Tariff preferences for export to The United States, Mexico, Europe, Andean Countries, Caribbean and Central America - The Greatest Economy in Central America - Port infrastructure in both oceans less than 4 hours away from the city - Is the only country that has two high capacity ports in both oceans with a movement higher than 100,000 TEU s each one. - International Airport, 3 minutes away from the city s financial and hotel area. - Excellent hotel, restaurant and tourism sites infrastructure near the city. - Competitive worldwide operative telecommunications - Energy: Most recent legal background in the area, great investment potential - Telecommunications competitive cost - Solid and varied industrial structure - Export supply in agricultural, industrial, handcrafts, forestry and sea products. - Tourist potential (heart of the Mayan world, rich biodiversity, multicultural and plurilingual environment, fun and adventure). III. Areas to Create Competitive Advantages in Guatemala: 3.1 Exchange Rate Exchange rate maintains an overvalue level due to macroeconomic stability policies in relation with the value of our competitors. From 1995 to 1998 exchange rate indicated that the Quetzal was appreciated in a 30% (calculating as basis year 1990). 1 3.2 Transport Costs: The transport high costs influence in the competitiveness of the Guatemalan exports due to the products of our exports supply not of a high value. For example, in some fruits, the transport cost represents 50% of the exported product value. 3.3. Electric Energy Costs: Good electric energy services. 1 One of the most discussed topics in the base year in order to calculate the actual currency exchange rate. At first the companies had to absorb this appreciation of its costs in terms of dollars through a productivity improvement. 3
3.4 High Financing Rates: Financing is another aspect that influences the Guatemalan competitiveness. The high cost for credit does not allow that small and medium enterprises to grow its production competing with companies in other countries that have more competitive rates. Even though the last year s tendency is declining, it still reflects an important breach regarding the competitor s credit. The Europe interest rate is 6.27%, in the United States is 6% and in Guatemala is 8%. 3.5 Customs: The customs processes required important improvements according with the best practices at a worldwide level 3.6 Low Qualification Human Resources: The globalization requires to globalize the human resources too. The educational levels and language domain must be strengthened. Within this context, Guatemala is promoting the implementation of an Foreign Commerce Policy, based in Competitiveness. IV. Impulse a Foreign Commerce Policy based on Competitiveness 1. State Policy = External Commerce Politic as Development Politic 2. Total competitiveness (internal and external) as principal area 3. Systematic Competitiveness (companies/environment/state/civil society) 4. International commerce negotiations 5. Mixed Institution, with essential incidence that gives continuity to long-term politic. Axis 1. State Policy: Every society s ambition is to try to reach a better life level for its members through development and at the same time determined at great degree, by the people s income level. Exports are the way to create jobs, in the dimension Guatemala needs (5 millions). This is why a well-managed Foreign Commerce Policy is synonym of a development policy. Axis 2. Total Competitiveness: Competitiveness is the basis of Foreign Commerce Policy and domestic commerce too. Competitiveness makes them just one policy due to globalization demands national companies have the same competitiveness level in order to compete in the international market as well as in the domestic market with foreign products. Axis 3. Systematic Competitiveness: Competitiveness development involves many aspects (macro, meso and micro character), as well as multiple actors of the government and civil society. Many Ministries are involved and there are tasks for associations, community organizations and for employer and workers organization. This is why competitiveness is systematic, since it requires a system in which everyone has a task to make. Axis 4. International Commerce Negotiations: A competitive production requires a secure access to international markets, as well as clear rules to assure the international commercial negotiations frame. Axis 5. Mixed Institution: A Foreign Commerce Policy follow up requires a mixed follow up element that transcends the government changes. V. Government Programs that Support Competitiveness In Guatemala there are several government programs that support competition. These programs are described as follows: 4
5.1 Competitiveness National Program PRONACOM -: The Competitiveness National Program appears in Guatemala in the regional agency frame to promote the Central American competitiveness and to assure its maintenance. The purpose of this Program it that Guatemala compete in globalization context. This includes working to surpass the country s business atmosphere in areas such as investment promotion, national statistic system, quality national system, transport, training and competitiveness. Also in cluster development and support systems to companies with a comparative financing program, information services for pymes and an enterprise social responsibility program. 5.1.1 Investment Promotion (Investments in Guatemala): The Ministry of Economy has the Invest Office in Guatemala, which goal is to promote the country abroad with the purpose of attracting foreign investment to Guatemala. 5.1.2 Cluster Development: As part of the Competitiveness Agenda, Guatemala has some, such as apparel, textiles, forestry and agricultural. 5.2 CONAPEX Export Promotion National Council and CONACOEX Export Coordination National Commission This council was created in 1986, is the most important external commerce forum in the country. It is intended to suggest the President of the Republic, the national promotion policy, Increasing Exports, Tourism and Investment, as well as to look for the execution of this policy. Under CONAPEX, it has been developed and promoted the Drawback Law, Free Trade Zones Law, One Step Window and the Commercial Attaché Program for Investment and Tourism (PACIT). 5.3 Market Intelligence (PACIT): This program was created in 1989 in a mixed effort between the government and the private sector in the - CONAPEX frame. Its main goal is to be an efficient tool for exporters in its access to new market though a Commercial Supplement net abroad. This tool has successful results in the arcadian export promotion and investments attraction. 5.4 Science and Technology National Council CONCYT : CONCYT constitutes the highest authority in the country, in national control and management of scientific and technological development. To execute and instrument, CONCYT has Section and Intersection Commissions integrated conformed by public, private and academic areas. This commission s present work plans, programs and actions that cooperate to form national scientific and technological development politic of the region s nature. 5.5 National Commission of International Commerce Negotiations CONEI CONAPEX counseling forum of the Ministry of Economy s international commerce negotiations. One of its tasks is to prior negotiation fronts and consensus with the involved sectors the decisions regarding the international commerce negotiations. 5.6 Commissioner s Office for Plan Puebla Panama: The Plan Puebla Panama goal is to emphasize human and ecological richness of the Mesoamerican region among a developmental frame that respects ethnic cultural diversity and the environment. This plan consists of eight goals that point to increase the Guatemala 5
competition, as it is the road interconnection case, commerce facilitation, electrical interconnection, telecommunications, human development, environment, tourism and natural disaster prevention. 5.7 Micro, Small and Medium Enterprise Economy Vice Ministry: This Economy Vice Ministry is in charge of coordinating policies and strategies that ease the competitive development of productive areas. This Vice Ministry directs technical and financial resources for micro, small and medium enterprises, as well as of financial services, training, technical assistance, technology and commercialization. 5.8 Training Technical Institute INTECAP INTECAP is a technical institution specialized for human resources development and productivity enhancement. Its purpose is to offer a specialized service to the productive area of human resources training, through workers professional formation events and new labor in several economic activities. 5.9 National Negociations System of Trade Agreement: The Ministry of Economy has a structure in order to assist the commercial negotiations matter and has designed a system to coordinate actions among the public and private sector institutions in CONEI framework. At the private sector level entities case, it channels communications through International Commerce Negotiation Enterprise Commission CENCIT- VI. Clusters in Guatemala 6.1 An Example of Apparel and Textiles Clusters in Guatemala: The following presents the apparel and textiles case, one of the biggest export sectors (represent the 34.6% of the total of not traditional exports of the year 2001), which is promoted. The apparel and textiles sector consists of a group of visionary businessmen that have implemented several programs that enables to add value to the export products creating competitive advantages for the enterprises. 6.1.1 Industry Data Companies Employment Factory No. 224 94,074 Textile Factory No. 36 18,500 Accessory Enterprises No. 260 15,000 6.1.2 Exports: The apparel and textiles sector exports increased in 2001 to 403 millions of dollars. 6.1.3 Sector Vision To consolidate sector competitiveness 6.1.4 Growing Strategy: The elements of the growing strategy are: a) Develop enterprise s response time, through training and contracting of experts in the subject. b) Better use of Caribbean Area benefits CBPTA though the development strategic alliances. 6
c) Develop a commercial promotion aggressive strategy to promote a new view of a quick turn sector. d) Promote the development of industrial parts. e) Continue to incorporate enterprises to the Labor Conduct Code in order to meet the international labor standards. f) Develop the sector social branch. g) Guatemala as a regional center of distribution for the Caribbean and Central America. 6.1.5 Implemented Programs to Add Value and Create Competitiveness Advantages: To achieve this the apparel and textiles sector has based its development and growth strategy through sector cluster consolidation, which has the following components: 6.1.5.1 Cluster Components: 6.1.6 Conduct Code 6.1.5.1.1 Training: o To have a highly qualify work force that promotes and participates in the development of the country area. o To have continuous education and training measures in the area, that covers the necessary areas for its development. 6.1.5.1.2 Marketing: o To position Guatemala as a regional center for hiring production marketing and sales for the apparel and textiles industry. 6.1.5.1.3 Information Center o Establish a modern information center that gathers and processes all important information for the sector where internal and external users can access through the net. 6.1.5.1.4 Free Trade Zones o Its goal is to have free trade zones at a world wide level. Competitive industrial parks with modern infrastructure, facilities, and user services. 6.1.5.1.5 Services and Accessories o Incorporate services and accessories enterprises to the area activities and this way improving competition. 6.1.5.1.6 Commercial Negotiations o To obtain access conditions to the international market for products in the area assuring its entry. 6.1.5.1.7 Financing o Achieve credit access to companies in the area to competitive rates with the purpose of increasing production and exporting the total package. Voluntary tool that eases respect and labor legislation application, verifying in an efficient way if each company integrated in the program effectively meets each labor and environmental observance principles. These principles are: 1. Non Discrimination, 2) 7
Freedom of Association, 3) Equality, 4) Labor of Minors, 5) Salaries and shifts, 6) Labor Environment, 7) Forced Work, 8) Preservation of the Environment and 9) Respect to the people s moral and physical Integrity In May, 2002 the apparel and textiles industry was honored with the gold medal granted by the Work Ministry by Ministerial Agreement as a recognition the its research work, study, publication and application of labor rules through the Labor Development Program (conduct code). 6.1.7 Social Development Program (social branch) This is a program that intends to ease the enterprises in the area, a means to centralize, channel, and globalize different social actions that are executed to benefit workers and the communities in which they operate. Program Objective To convert industry in an ample social compensation factor and be a bigger wealth provider. Program Principles Voluntarily participation to seek multi sector alliances, impulse self-sufficient actions, harmony between businessman and workers. Program axis: Preventive Health (sexual and reproductive health, nutrition, dental health) Alphabetization (create alphabetization centers, grant scholarships to the worker s children, incentives by learning levels) 6.1.8 Health and Work Security Program: Health and work security program pilot plan with 25 enterprises Creation of Employment Health Manual Cooperation with Labor department in the United States of North America to the Health and Security Program Alliance with the Work International Organization OIT (technical support for Health and Security Pilot Plan Program in the work, OIT endorsement in order to use the safe work label) 6.2. Forestry Cluster Example: With the intention of converting Guatemala in a highly developmental forest country, the diverse forestry actors have been united to create and fortify the necessary conditions for this purpose. In this cluster s frame, the following activities are performed: Make a Diagnosis Form work committees Follow up reunions in order to supervise progress Formalize wood technology academic degree 6.3 Agroindustrial Cluster Example This sector is working on the beans; potato, fruits, tomatoes and coffee sectors forming work groups with different institutions related to these areas. 8
6.4 Tourism Clusters Example: This was the first cluster implemented. The following activities were performed: Form a cluster committee We are working on the following segments: ecotourism, agrotourism, congress, conventions, cruises, archeology, sports. For each segment we make a sensitive leadership. We have formed local tourism committees to the people that have studied. 9